Northeastern Exposure

The Northeast couldn't catch a break in 2003. Every few months, a new disaster struck, tossing the region's retail sales trends to the wind. Stores had just finished dressing windows with pre-spring merchandise in February when Winter Storm 2003 blew in, virtually shutting down Philadelphia and New York, and disrupting sales throughout the Northeast.

Then, the Great Blackout put a damper on the back-to-school season in the Northeast, causing most retailers to lose between 0.5 and 1.5 days of business, according to Banc of America Securities analyst Dana Cohen.

All in all, consulting firm ShopperTrak Inc. estimates retailers lost $30 million in sales because of the blackout. That number seems small compared to the $422 million lost in the President's Day weekend snowstorms.

The Northeast also suffered when Toys R Us announced plans to close 59 Kids R Us and Imaginarium stores in New York, New Jersey and Pennsylvania, weakening community center rent growth for the region through first quarter 2004. The stores average 20,000 square feet apiece.

Yet, despite the acts of God and man, the region survived, and retail sales and real estate continue to be strong performers, especially in Manhattan.

Asking rents for available Manhattan retail space surged 8.2 percent in the past 12 months to $92 per square foot, according to the Real Estate Board of New York. Average asking rents for ground-floor space increased 35 percent, rising to $275 from $204. Average ground-floor asking rents in the prime retail corridor on Madison Avenue, between 57th and 67th Streets, climbed 39.3 percent to $684 from $491. Average East Side rents rose 28.8 percent to $143. And Midtown rents rose 10 percent to $121.

As in much of the rest of the United States, few retail projects were completed during the year. Retail construction starts in suburban Long Island dropped 25.6 percent from 2002 levels; New York starts dropped 50.2 percent; northern New Jersey starts fell 7.9 percent; and Philadelphia starts fell 20.4 percent compared to 2002, according to research compiled by Smith Barney Citigroup.

Rising retail loan delinquencies pointed to problems in Philadelphia and northern New Jersey, according to Wachovia Securities. As of March, 2.49 percent of CMBS loans in northern New Jersey were delinquent. In Philadelphia, 2.41 percent were delinquent, compared with the U.S. average of 1.24 percent The year was also notable for the number of properties that changed hands, due largely to an aggressive push by the Philadelphia-based Pennsylvania Real Estate Investment Trust (PREIT) to expand its East Coast muscle. After selling off its multifamily properties, it acquired Crown American Realty Trust's 27 mall-business and seized control of the Philadelphia retail market by purchasing six malls from The Rouse Co.

And in November, Simon Property Group strengthened its foothold in the Northeast by upping its stake in the Kravco portfolio, which includes six Philadelphia malls.